Capital Allowances on HP
Ok, I understand the principles of accounting for HP contracts (unless somebody shoots me down here)
It is rather subjective but if you have determined that the contract is a finance lease (as opposed to operating) then you capitalise the agreed value as an asset and have a corresponding liability.
All capital payments go agaisnt the liability but all interest payments go to the PNL. For tax purposes (ignoring capital allowances at this point) only the interest element is deductible.
Reading then about the capital allowances and notional ownership can anybody briefly advise whether or not a contract in which the lessee has the option to buy the asset at the end of the contract is eligible for capital allowances?
CA23310 (http://www.hmrc.gov.uk/manuals/camanual/CA23310.htm) seems to state that such an arrangement does not come under capital allowances until the final payment has been made but then states that The Capital Allowances Act 2001 is very generous and allows capital allowances as soon as the asset is brought into use.
And what if the material facts of a particular HP contract where you only have the option to buy indicated, overall, that the commercial substance was that of a finance lease? I.e. over 90% of the fair value of the asset. I've probably misread something, it's been a long old day.
Sorry for asking something quite technical but I would very much appreciate any nuggets of guidance.
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